Angel Corporation reported pretax book income of $1,038,000. During the current year, the net reserve for warranties increased by $30,700. In addition, tax depreciation exceeded book depreciation by $109,500. Finally, Angel subtracted a dividends received deduction of $32,600 in computing its current year taxable income. Angel's hypothetical tax expense in its reconciliation of its income tax expense is:

hypothetical entry at 21% corporate income tax

income tax expense 211, 134

deferred tax (benefit) 29,442

income tax payable 240,576

Explanation:

pre tax book income 1,038,000

permanent difference:

dividends deductions (32,600)

book taxable income 1,005,400

temporary difference

higher tax depreciation 109,500

warranty reserve 30,700

(which cannot be deducted until occur)

taxable income 1,145,600‬

Assuming the current corporation tax rate for 2019 of 21%

1,005,400 x 21% = 211, 134 tax expense

1,145,600 x 21% = 240,576 tax payable

deferred tax benefit: 29,442 benefit

This is a benefit because the depreciaiton and warranty expense will match eventually.

The depreciation at the end of the equipment life

and the warranty when occur.

In those period, the accounting will recognize no expense for warrant, so his book income will be higher but pay for a lowe income as the warrant cost will be deducted.

Same goes for depreciation, later it will not have depreciation expense, but for the fiscal year it will.